LANSING – For the first time in a decade – in fact, for the first time since Michigan last increased its tobacco tax – tobacco tax revenues increased during the 2014-15 fiscal year, figures show.
The increase does not appear related to more people smoking. Rather, the increase seems due largely to lower gasoline prices that allow persons who smoke to spend their savings on some extra packs of cigarettes.
Growth in cigarette sales seems to be the factor driving increased revenues from the tax. Figures from the Department of Treasury show that revenues from cigarette sales grew in 2014-15 for the first time in at least three fiscal years. Revenue growth in sales of other tobacco products, such as cigars, pipe tobacco and snuff, have been growing consistently over the years, but those sales account for less than one-tenth total tobacco tax revenues (Electronic cigarettes are not taxed by the state).
Also helping with cigarette sales is improved enforcement techniques and practices by wholesalers, which have cut down on illegal sales, said Polly Reber, president of the Michigan Distributors and Vendors Association.
Total revenues for the 2014-15 fiscal year, which accrues revenues through October, were $944.7 million, according to the Senate Fiscal Agency. That was up 0.5 percent from the 2013-14 fiscal year.
According to Treasury, which tracked fiscal year revenues through September, the state collected $944.1 million in tobacco tax revenues in 2014-15, an increase of 0.01 percent.
It is, however, the first increase in revenues from the tax since the 2004-05 fiscal year. In 2004, the state increased its tobacco tax from $1.25 a pack of cigarettes to $2 a pack. That year, the state collected $1.185 billion in tobacco taxes, up 23.6 percent from the year before, according to the SFA.
Since then, tax collections have steadily declined. They fell below $1 billion in the 2010-11 fiscal year.
Whenever the state has increased the tobacco tax, there have been concerns the state was losing money to smuggling operations from states with lower taxes. Also, there were concerns shipments were being stolen and sold on the black market.
Reber said changes the state and wholesalers enacted have cut down on illegal activity in tobacco sales.
The state switched from thermal stamping of cigarettes, which is easier to counterfeit, to digital stamping in 2014. Terry Stanton, spokesperson for the department, said it was unclear what the effect of the digital stamping program has been, but that it is possible that digital stamps “have helped eliminate some evasion ‘schemes.'”
Reber said wholesalers now take extra steps as well to prevent theft. Delivery trucks are now sent out unmarked and have two people in the cab to guard against thefts.
But the biggest factor driving increased sales, Reber said, appears to be lower gasoline prices.
Stanton also said nationwide tobacco sales are up and lower gas prices seem to be the main reason.
Most cigarette sales are at convenience stores, Reber said, and with fuel prices down by as much as $1 a gallon from a year ago, smokers feel they have a little more money to buy cigarettes. That is particularly an incentive when cigarette prices are so high, she said. Premium brands can cost more than $6.50 a pack.
Even sales of cartons of cigarettes are up, Reber said.
Statistics from Treasury show that in the 2014-15 fiscal year, cigarette sales were up by 0.8 percent from the year before. In the 2013-14 fiscal year, cigarette sales fell 2.1 percent from the year before and in 2012-13 they fell 1.5 percent from the previous fiscal year.
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